PRESIDENT CARTER stalked into office two years ago confident that he could stop inflation and balance the federal budget. For the most part he was fought his war on inflation with disapproving cooperation to control rising prices. To one battle, however, Carter carried a real weapon, and proved himself completely inept in wielding it against his enemy, the medical profession.

Carter planned to stop rising hospital costs by slapping a 9 per cent ceiling on revenue increases and major capital expenditures, enforcing the regulations with the clout of Medicare and Medicaid, the source of more than half the hospital industry's revenues. Backed by blustering Joe Califano, secretary of HEW, Carter pushed the bill on a reluctant Congress in April 1977. Since then, committee after subcommittee responded to heavy pressure from the medical lobby and near-total silence from public interest groups, dismembering the original bill.

The administration's inflation fighters regrouped and returned to Congress last week with yet another hospital cost bill for the new session. Patched together from the tattered remains of the original plan, scraped up from the Congressional floor, the new proposal is obviously the victim of a long political struggle. The current bill gives the hospital industry several months to voluntarily limit inflation, and imposes mandatory controls only if that effort fails. The mandatory program exempts states that have their own cost containment programs, as well as new or rural hospitals, health maintenance organizations, and other facilities that can claim special conditions. About 55 per cent of all hospitals would thus elude these mandatory controls.

The crippled bill, if it hobbles through Congressional committees to the floor, may even pass, because it is obsequious enough to collect votes in spite of continuing lobbying by the American Medical and Hospital Associations (AMA and AHA). Spending more than $3 million a year, those organizations put up a united front opposing mandatory controls and publicizing the hospital industry's moderately successful voluntary effort.

Sen. Edward M. Kennedy '54 (D-Mass.), the administration's solid backer from the beginning, ushered a version of the original bill through the Senate under fire from the medical establishment, and he will probably shepherd the revised version through as well. Leadership in both houses, however, has not proven as rancorous as younger members who feel ignored by Carter, courted by the hospital lobby and pressured by influential constituents who serve as hospital trustees. If Carter now shows a greater understanding of the political process, his compromises have not saved the bill from an essential misperception of the nature of health industry operations. It may pass, but it won't work.

HOW CAN mandatory controls fail? Carter is trying to hold off the flood of inflationary growth without addressing the source; his approach is entirely superficial. The health care industry obeys the peculiar laws of nearly insatiable demand controlled by doctors and rising prices set by medical suppliers insensitive to hospital administrators because they knew he can pass the cost on to the insurer.

Since the 1930s, commercial insurance firms have reimbursed hospitals on a cost-plus basis--the more hospitals spend, the more they collect. By the '60s, slightly inflated costs caused hospital bills were to weigh heavily on families without sufficient insurance and liberal America introduced Medicaid and Medicare to ease the burden.

Ironically, in the ensuing decade-and-a-half, public insurance programs greatly exacerbated the upward spiral of health costs. By providing almost limitless funds for hospital services, Medicare and Medicaid fostered loose management, easy expansion and profits for related industries. Improvements in quality or access to care have generally been made at great cost. Hospitals compete for physicians with expensive new technology and abundant beds, and doctors stock the wards. Because insurance usually covers in hospital care, doctors tend to hospitalize a patient for procedures which could be done on an outpatient basis, to keep the patient in the hospital longer, and to overutilize marginally useful services. The physician usually isn't a hospital employee and is not necessarily responsive to the administrative chain of command. He has no financial stake in the hospital and no strong incentive to economize. More likely he will maximize his income and the patient's satisfaction by using facilities to the greatest extent. The third-party reimbursement system and the flood of federal dollars into medical care have combined to cause explosive growth. The health care industry has tripled in size since 1970; total expenditures now exceed $200 billion per year, almost 10 per cent of the gross national product.

CARTER IS RIGHT when the points to escalating hospital costs as a major source of inflation, but his ceiling on revenues is at best a stop-gap measure. More fundamental changes are needed, but as usual the public seems solidly set in its apathetic ways. Everyone has a hospital horror story, but few maintain a running interest in the issues of hospital organization and economics. For most people, serious illnesses are rare, and when they do happen insurance cushions the blow. The average patient pays only 8 per cent of his hospital bill, though this fee can still seem catastrophic. Government and consumers increasingly take on difference in costs passed on in taxes and higher-priced non-medical goods. For example, a Ford car in 1968 cost about $20 more because of employee health insurance. Last year, the car would have cost $150 more for those benefits. The relative invisibility of health care costs insulates the health industry from public pressures which might force it to operate more efficiently and responsively, and leaves the public only partially aware of the real cost of the medical establishment.

AMERICANS TEND TO THINK health care is too important to be politicized. On the contrary, the health industry is now so large that it must be made accountable to the public interest. Direct regulation of hospitals, an industry already heavily over-capitalized, will not greatly improve efficiency. The passage of Carter's hospital cost containment bill will provide temporary relief to the federal budget and insurers, but in the long run will discourage more ambitious and fundamental changes. The debate between legislators and private interests must broaden to include public voices.